U.K. RMBS Issuance to Swell to Five-Year High in 2016, Citi Says

Sales of U.K. mortgage bonds are set to reach a five-year high next year, according to Citigroup Inc.

Issuance of residential mortgage-backed securities will total as much as 25 billion euros ($26.7 billion), the most since 33 billion euros were sold in 2011, according to a report by analyst Ratul Roy.

The U.K.’s 107 billion-euro RMBS market, the biggest in Europe, has shrunk by more than 25 percent since 2013 as stricter regulatory capital demands made it more expensive for the biggest banks to securitize loans. New issuance will mostly come from smaller banks set up since the financial crisis and from sales of older loan portfolios, such as the U.K. government’s disposal of 13 billion pounds ($19.8 billion) of Northern Rock Plc mortgages, known as Granite, Roy said. 

“The U.K. RMBS market will be the most active since 2011 next year, but it will look very different to how it did back then," Roy said in a phone interview. "There’s a scarcity of RMBS from mainstream banks. New issues will come from portfolio sales like Granite and from the challenger banks."

The Granite bonds can be redeemed next month, releasing mortgages that can be repacked into new RMBS, Roy said.

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